Hariri pushes the beast off

Samsung has pulled out of its SanDisk bid because it looks far too risky - with SanDisk making increased losses, selling off some manufacturing capacity, and its share price tumbling well below the bid offer.

A Samsung bid withdrawal letter, quoted by Objectve Analysis's Jim Handy, said: “Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile." The letter also mentions the difficult economy.

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The speed of the recessionary winds circling the globe has upset Samsung's calculations and it isn't going to finance SanDisk CEO Eli Hariri's fantastical notions of his company's valuation.

On his part Hariri isn't going to sell himself and SanDisk short to some opportunistic Korean carpetbagger. The SanDisk reply to the withdrawal letter said: "SanDisk's Board has remained open to a transaction that recognizes SanDisk's long-term value and contains the right protections for SanDisk's shareholders."

Both companies say the other would not talk meaningfully. The thing is SanDisk and Samsung have greatly differing views of SanDisk's value. The tenor of SanDisk's comments during the bid has suggested it thinks it is worth upwards of $35/share and that Samsung knows this and is trying to buy it at an unrealistically low $26/share.

SanDisk probably thinks that Samsung was never entirely serious with the bid, using it as ploy to gain leverage in license renewal negotiations. SanDisk's court victory in validating an earlier license termination probably killed the bid from that point of view. The withdrawal, Hariri will say, vindicates SanDisk's position.

Samsung thinks that the Hariri and his board are unrealistic and intransigent. According to its reading, SanDisk hasn't come to terms with the fact that their world has changed, with the NAND flash glut leading to a second consecutive quarterly operating loss ($155m). Samsung sees a panicked sale of 30 per cent of SanDisk's joint-venture manufacturing capacity to Toshiba and a falling SanDisk stock price, down to $14.76, well below the bid price. both indicating SanDisk instability. Obviously, SanDisk share buyers think the bid is going nowhere and that SanDisk's value is way down from Hariri's ideas.

Over-supply in the NAND flash business will continue and consolidation is still needed. However, SanDisk, and Toshiba and no doubt other flash manufacturers think that flash Nirvana is around the corner and they will make big bucks. Samsung is of the same mind but less bullish

Tomorrow is another day and SanDisk could yet be there for the taking if its business results keep heading south. ®